Indian bond yields rise tracking US peers; local inflation dents sentiment

economictimes.indiatimes.com:

The benchmark 7.26% 2033 bond yield ended at 7.2487%, its highest since April 5, compared to its previous close of 7.2034%. «The benchmark bond yield mainly rose because U.S. yields have been rising with Fed minutes not providing much comfort,» said Debendra Kumar Dash, senior vice-president, treasury, AU Small Finance Bank.

«Benchmark yield should consolidate around 7.25% for some time, but if U.S yields remain elevated then we can see a break from this level.» U.S. yields have been rising for the last six sessions on growing expectations that a resilient economy will ensure interest rates remain higher for longer. Benchmark 10-year U.S.

yields hit a 10-month high on Wednesday after the Federal Reserve's July meeting minutes showed that officials were divided over the need for more interest rate hikes. The Fed raised rate by 25 basis points in July to 5.25%-5.50% range. Back home, July retail inflation spiked to 7.44% from 4.87% in the previous month as vegetable and cereals prices skyrocketed, beating expectations of 6.40% in a Reuters poll.

The July figure was the highest since April 2022 and breached the upper end of the Reserve Bank of India's inflation band for the first time in five months, which could prompt the central bank to turn more hawkish. «Headline inflation is not a major concern for bond traders at the moment because it is seen transitory, but food inflation over the next 2-3 months will be closely watched,» Dash said. Indian overnight index swap rates rose to their highest levels in more than five months amid growing expectations of yet another rate hike from the RBI.